Deductions in respect of capital expenditure on certain buildings

 Paragraph 1(1) 2nd schedule allows taxpayer to deduct any expenses utilized by them on the construction of an industrial building to be used in a business to be carried on by TP or his lessee. This is the deduction of the construction expenses for that building. For the building to qualify, as an industrial one there must be some machinery in the building such that by the time of the deduction:
-The building will already have been constructed
-Use will be manifested by the machinery

Income Tax Commissioner vs. B Ltd (1973) EA 323
TP sought to deduct expenses of alleged industrial buildings used by TP as stores with no machinery in them, which ITC disallowed on grounds that a building without machinery could not be exempted. It was HELD that allowing the commissioners appeal that deductions was only available for an industrial building that had machinery in it. The stores did not qualify.

TP Ltd vs. Income Tax Commissioner (1974) EA 415
The appellant had been allowed to operate a casino on government land for 15 years and was required to release the land to revert to the government after that period. By that time, he had constructed buildings and  sought  to  deduct cost  of construction  from the gross income on grounds that the same had been wholly and exclusively incurred in the earning of the income and that the argument to surrender the land and buildings to the government  made  the cost of construction to be an income of capital expense. The appellant claimed that under Section 141 of the EAIT (management), Act, which is similar to Section 128 of Kenya,’s Inct Act and which far from empowering commissioners to   allow deductions, it allows the commissioners discretion to either abandon or remit/compromise a tax payment under specific circumstances.
It was HELD  that since land and buildings were a capital asset, their surrender constituted a loss, diminution, or exhaustion and capital was  therefore not deductible under  the Section relied on which merely gave power to the commissioners to refrain from assessing  or tax did not allow deductions.

Income Tax Commissioner vs. P Ltd
The respondents owned an industrial building, which they leased to their subsidiary, which then bought and installed machinery and sought to deduct its cost. The commissioner resisted where local commissioner allowed the deduction. On appeal, it was HELD that the commissioners disallowance is reinstated because for a deduction for machinery to be allowed but building and machinery must belong to the same TP


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